North Carolina Legislative Committee Recommends Cap On Local Business Taxes

Date: April 17, 2014

The Proposal Follows Recent Reforms To The Tax Code

North Carolina state legislators are moving
toward a proposal to change how small businesses are taxed. Specifically, a tax
study committee last week agreed to draft legislation that the general assembly
is expected to take up next month that would create a more uniform system for
taxing small business.

What Would The Proposed Legislation Do? Currently, cities and municipalities create
their own rules for taxing businesses, which can result in much higher
privilege taxes in addition to income taxes. The proposal would institute a
uniform flat tax for local businesses, which would eliminate the differences
across the state in taxing similar businesses. The small business sector is
applauding the legislature’s efforts to make the system more coherent, but some
critics of the proposal argue that cities and municipalities would be forced to
increase property taxes in order to make up for lost revenue. Cities and
municipalities have been especially vocal in their criticism. Charlotte, for
example, stands to lose about $8 million in revenue, and Raleigh about $3.4
million, in fiscal year 2015-16.

What About The Recent Tax Overhaul? The committee’s move to push forward this
legislation follows North Carolina Gov. Pat McCrory’s signature into law of an
overhaul to the tax code that will take effect next year. The new law
simplifies the personal tax rate, lowers the corporate tax rate, caps the gas
tax and repeals the estate tax. These reforms allow both individuals and
businesses to keep more of their money, increasing North Carolina’s
competitiveness.

Further Reading:

The Triangle
(NC) Business Journal
and the AP reported on the North Carolina
legislature’s agreement last week to study a draft proposal which would repeal
the current system of calculating local business privilege tax. NBC News and WTVD-TV reported on Gov. McCrory’s
comments this week regarding the benefit of the new tax system.